Section 9(2B) rights explained

What are section 9(2B) rights?

Section 9(2B) rights are the contracted-out pension rights built up in a defined benefit scheme between 6 April 1997 and 5 April 2016. They take their name from section 9(2B) of the Pension Schemes Act 1993, and they replaced the Guaranteed Minimum Pension for service after April 1997.

In practice, section 9(2B) rights are simply the part of your final salary pension that you built up while your scheme was contracted out during that period. They come with some legal protections, especially for your spouse or civil partner.

Contracting out after 1997

Before April 1997, a final salary scheme that was contracted out of the State Earnings Related Pension Scheme (SERPS) had to promise each member a Guaranteed Minimum Pension (GMP). That rule ended on 5 April 1997.

From 6 April 1997, a scheme could still contract out, but instead of promising a GMP to each member, the scheme as a whole had to pass the reference scheme test. The pension built up under that test is known as section 9(2B) rights.

Contracting out continued, with SERPS replaced by the State Second Pension in 2002, until 6 April 2016. On that date the new State Pension was introduced and contracting out ended for everyone. No new section 9(2B) rights have built up since then, but the rights people built up before that date still exist.

The government's page on contracted-out pension schemes and the State Pension explains how contracting out affects your State Pension.

The reference scheme test

The reference scheme test asked whether a scheme's benefits were broadly at least as good as those of a standard "reference scheme". In simplified terms, the reference scheme provided:

• a pension of 1/80th of average qualifying earnings in the last three years, for each year of service, up to 40 years (qualifying earnings were 90% of earnings between the lower and upper earnings limits for National Insurance)
• a normal pension age of 65
• a pension for a surviving spouse or civil partner of half the member's pension

The scheme actuary had to certify that the scheme as a whole met the test. It was not a minimum worked out separately for each member, unlike GMP. That's why many pension statements don't show a separate section 9(2B) figure: your section 9(2B) rights are just your benefits for that period of service.

Main features of section 9(2B) rights

Increases once your pension is paid

By law, pension built up after April 1997 must increase each year once it is being paid:

• pension built up from 6 April 1997 to 5 April 2005: in line with inflation, up to 5% a year
• pension built up from 6 April 2005: in line with inflation, up to 2.5% a year

Your scheme may be more generous than these minimums.

Increases before your pension is paid

If you left the scheme before retirement, your deferred pension is increased each year until it is paid:

• pension built up before 6 April 2009: in line with inflation, up to 5% a year over the whole period
• pension built up from 6 April 2009: in line with inflation, up to 2.5% a year

A pension for your spouse or civil partner

Section 9(2B) rights include a pension for your surviving spouse or civil partner, normally at least half of your pension for that period of service. Many schemes also provide pensions for other dependants.

Protection if your employer fails

Like the rest of your final salary pension, section 9(2B) rights in a private-sector scheme are covered by the Pension Protection Fund if your employer becomes insolvent and the scheme can't pay. The PPF pays compensation under its own rules, which may be less than the full scheme pension.

How to find out if you have section 9(2B) rights

You may have section 9(2B) rights if you were an active member of a contracted-out final salary scheme at any time between 6 April 1997 and 5 April 2016.

• Check your benefit statement or scheme booklet for references to contracting out.
• Ask your scheme administrator which parts of your pension were built up during that period.
• Your State Pension forecast shows whether you were contracted out in particular years.

Section 9(2B) rights and transfers

If your scheme allows it and you haven't started taking your pension, you can usually ask for a transfer value covering all your benefits, including section 9(2B) rights. Members of unfunded public-sector schemes, such as the NHS, Teachers' and Civil Service schemes, can't transfer to a defined contribution pension. Find out why.

Before thinking about a transfer, it helps to understand what you would be giving up:

• A guaranteed income for life that increases each year, within the limits above.
• A survivor's pension for your spouse or civil partner, which would cost a great deal to replace.
• Protection from the PPF if your employer fails.

These benefits are hard to replicate with an invested pension, which is why a transfer is often found not to be in a member's best interests.

The rules that apply

• Advice is legally required over £30,000. If your safeguarded benefits are worth more than £30,000, you must take advice from an FCA-authorised firm with the pension transfer permission before you can transfer.
• The FCA starts from the position that a transfer is unlikely to be suitable for most people. Advisers must assume a transfer won't be suitable unless they can clearly show it is in your best interests. See the FCA's guide to defined benefit pension transfers.
• A transfer cannot usually be reversed.

What a regulated adviser would usually explore

If you take advice, a regulated adviser will look at your whole situation, including:

• whether you have a spouse, civil partner or dependants who would rely on the survivor's pension
• how your essential spending would be covered in retirement, and how much of it this pension pays for
• your other pensions, savings and income, including your State Pension
• whether you have a real need for flexible access to money, and the risk that a flexible pot could run out
• who you would want to receive any benefits when you die
• how comfortable you are with investment risk and with making ongoing decisions

None of these on its own means a transfer would be suitable. The adviser must weigh them against everything you would give up.

We do not give defined benefit pension transfer advice. We offer a free, no-obligation chat explaining how section 9(2B) rights, transfers and the advice process work. If you then want regulated advice, we can introduce you to an FCA-authorised firm that holds the pension transfer permission. Arthur Browns may receive a fee from the firm we introduce you to if you become their client.

Read our main guide to how defined benefit pension transfers work.

Frequently asked questions

Are section 9(2B) rights the same as GMP?

No. GMP covers contracted-out service from 1978 to 1997 and is a minimum worked out for each member. Section 9(2B) rights cover contracted-out service from 1997 to 2016 and come from the scheme as a whole meeting the reference scheme test. Some people have both.

Why doesn't my statement show a section 9(2B) figure?

Because the reference scheme test applied to the whole scheme, there is often no separate amount. Your section 9(2B) rights are your benefits for contracted-out service between 1997 and 2016. Your scheme administrator can confirm which parts of your pension relate to that period.

Do section 9(2B) rights still build up?

No. Contracting out ended on 6 April 2016, so no new section 9(2B) rights have built up since then. Rights built up before that date are still protected.

What happens to section 9(2B) rights when I die?

Your spouse or civil partner is normally entitled to a pension of at least half of your pension for that period of service. Your scheme's rules may provide more, and may also cover other dependants.

Where can I get free help?

MoneyHelper offers free, impartial guidance on pensions, and Pension Wise offers free guidance on your pension options from age 50.

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Important: Arthur Browns Wealth Management Ltd (FCA 825843) does not give defined benefit pension transfer advice. The FCA starts from the position that a transfer is unlikely to be suitable for most people, and a transfer cannot usually be reversed. See Important information.